Strategic behaviour and indicative price diffusion in Paris Stock Exchange auctions

TL;DR

This paper investigates the statistical properties of auction prices in the Paris Stock Exchange, revealing how trader strategies and market dynamics influence price diffusion and regularities during opening and closing auctions.

Contribution

It identifies the mechanisms affecting price diffusion in auctions and highlights the role of strategic trader behavior in producing nearly diffusive prices.

Findings

Price change magnitude decreases near auction end

Event rate increases near auction end

Strategic trader behavior influences price diffusion

Abstract

We report statistical regularities of the opening and closing auctions of French equities, focusing on the diffusive properties of the indicative auction price. Two mechanisms are at play as the auction end time nears: the typical price change magnitude decreases, favoring underdiffusion, while the rate of these events increases, potentially leading to overdiffusion. A third mechanism, caused by the strategic behavior of traders, is needed to produce nearly diffusive prices: waiting to submit buy orders until sell orders have decreased the indicative price and vice-versa.